Schools brace for end of temporary sales tax

Districts fear major budget cuts after defeat of Prop. 204

Education funding in Arizona could be facing its own "fiscal cliff," as years of budget cuts and the pending loss of more than $600 million in temporary tax revenue take their toll.

The expiration in May of a temporary sales tax for education, along with the defeat on Tuesday of Proposition 204, which sought to extend that 1-cent-per-dollar tax, has schools bracing for potential budget cuts that could mean layoffs, bigger class sizes, a delay in technology purchases and the loss of programs.

"I'm heartbroken," said Pam Kirby, a member of the Scottsdale Unified School District governing board who has three children. "I'm way beyond disappointed. We're going to have to make some incredibly difficult choices."

For many districts, the loss of the sales-tax money comes after several difficult budget years in which the state cut education funding because of economic fallout from the recession. The Washington D.C.-based Center for Budget and Policy Priorities found that Arizona ranked first in the nation in the depth of education budget cuts from 2008 to present.

This school year, Arizona's public schools are expected to get $3.2 billion in state funding, compared with $3.6 billion in 2008. That's the equivalent of $3,062 per student or $714 less per student than in 2008, according to a report by the Joint Legislative Budget Committee.

Arizona lawmakers are relying on a rebound in tax revenue to give the state a balance of about $400 million at the end of the next budget year in June 2014. That surplus, coupled with a $450 million "rainy-day fund," should blunt the loss of the temporary tax, said incoming Senate President Andy Biggs, R-Gilbert.

The temporary tax is expected to raise $922 million in its final year. Two-thirds, or $608 million, is directed toward education.

But there will be other strains on the state budget. For example, business-tax cuts estimated to reduce tax collections by $47 million take effect Jan. 1. Schools must put in place new mandates but don't have the money to do so. And federal health-care reform and a looming debate over what to do about the state Medicaid program will compete with education for surplus dollars.

That adds up to a tough sell for substantial education increases. The legislative budget office projects a 1 percent increase for education spending next year, or $71 million.

Many Republicans, who are in the majority in both house of the Legislature, say they aren't interested in finding new sources of money for education.

However, there are hints of another attempt to put a school-funding measure on the 2014 ballot.

Gov. Jan Brewer has said the state will work with the money it has to compensate for the loss of the tax, which she championed as a three-year bridge to get the state through difficult budget times.

Brewer, as well as most Republicans at the Legislature, argued against Prop. 204, saying the state can't afford a permanent in-state sales tax.

State Treasurer Doug Ducey led the successful campaign to defeat Prop. 204, calling it bad policy and disputing the need for a permanent tax. But he said he will work on improvements to the education system.

"(I) am eager to stay engaged and play a constructive role advocating for meaningful reforms and solutions going forward," he said in a statement issued after Prop. 204 failed.

He did not return a call seeking clarification of what that role might be or specifically what improvements he may suggest.

Schools feel the pain

School leaders say it's too early to tell what might be cut from local budgets. They won't know the financial picture until the state approves a budget for fiscal 2014, most likely sometime in the spring.

Many hope the state will make up for the loss with money from the general fund. School districts and charter schools that are experiencing enrollment declines or losing money from other revenue sources will likely be the hardest hit. The state pays schools based on the number of students.

For many school districts, Prop. 204's failure is compounded by the failure of local school-budget measures. Statewide, 23 of 49 budget overrides passed, while the rest failed or as of Friday were still too close to call, according to the Arizona Association of School Business Officials. Override elections allow districts to increase spending beyond state-imposed limits.

In the 27,000-student Scottsdale district, the failure of the override means the loss of $4 million beginning in July 2013.

Scottsdale's chief financial officer, Daniel O'Brien, estimates the money from Prop. 204 would have been worth about $14 million a year, or about 10 percent of the district's operating budget.

Overall, Prop. 204 was expected to boost per-student funding by $600 a year.

To deal with prior-year budget cuts, the Cave Creek Unified School District closed a middle school, boosted class sizes by an average of four students and scaled back kindergarten to half-day. Parents of kindergartners have to pay if they want a full day of instruction. The 5,700-student district has fewer nurses and school counselors. The district also cut its administrative budget, with employees taking on additional responsibilities.

"We're happy to do that for our students, but it's kind of getting to the breaking point," Cave Creek Superintendent Debbi Burdick said.

Compounding the problem: Cave Creek, a sprawling district that takes in portions of northeast Phoenix and north Scottsdale, has struggled to pass bonds and budget overrides. Seven of the eight most recent ballot measures have failed. This year, the district didn't have a bond or override on the ballot.

Voters in the 37,000-student Peoria Unified School District passed a $180 million bond to pay for technology, building repairs and new school buses. But the district will have to deal with the failure of Prop. 204, which was expected to bring in an estimated $18 million.

"We had the governor and state treasurer and several elected officials who worked awfully hard at defeating this," Peoria Superintendent Denton Santarelli said. "My hope is they work just as hard trying to find solutions to a sustainable future."

Ann-Eve Pedersen, who led the campaign for Prop. 204, said that although supporters are dismayed at 204's failure, it has been a wake-up call.

"A lot of people thought this would pass easily, and they're shocked," she said.

Like other supporters, she blames the late surge of "dark money" in the campaign's final weeks for sinking the measure. The "no" campaign received $925,000 from Americans for Responsible Leadership, a non-profit corporation that served as a pass-through for money from two other non-profits. Under state law, they are not required to disclose their donors.

Pedersen said she and the Arizona Education Network, a non-profit group that lobbies for public education, will ask the Legislature for more school funding.

"We heard during the election there was plenty of money in the budget. It's just sitting there, and it can go to schools," she said, recounting opponents' arguments. She and fellow parents plan to push that argument, although she doubts there is enough spare cash to restore school funding.

Funding boost remains unclear

Brewer has made improving Arizona students' college and career readiness one of her legacy issues. Her Arizona Ready Council is working on boosting standards but has not directly addressed funding.

Rich Crandall, chairman of the Senate Education Committee and a former Mesa school board member, ticked off a list of needs, from school repairs to technology upgrades to improvement in college preparation.

"The state has to step up,"said Crandall, R-Mesa. "We promised you (the voters) that if we defeat 204, we'll take back the responsibility."

He said he is confident the Legislature will take responsibility and direct some of the state's surplus to education. There also is a political motivation for Republicans, he said. "We've already alienated the Latino vote," he said. "Can we do anything more to hurt ourselves?"

But Crandall's counterpart in the House, Rep. Doris Goodale, R-Kingman, is less sunny about substantial increases in school funding.

"It's at a difficult spot right now," she said, noting other legislative priorities such as federal health-care reform and payments on the state debt.

"I have to go with jobs," Goodale said. "Of course, education is part of the jobs picture."

Jaime Molera, president of the state Board of Education, said it's "ludicrous" to argue that more school funding isn't needed. The best indicator is the state charter schools, long a favorite of GOP lawmakers.

Charter-school owners say they can't expand because the per-student funding from the state is too low to sustain new schools, Molera said. That mirrors the funding woes of district schools, he said.

He said he believes the public would back a tax increase for education if it tightly tied funding to performance, something he thinks was lacking in Prop. 204.

Earlier this year, the Arizona Board of Regents shopped a proposal that would have taken an existing 0.6-cent tax for education, tacked on an extra 0.2 cent and directed the money to new education goals, from K-12 to universities. It would have run until 2021.

Lawmakers gave it a chilly reception, but some hope the proposal, or something similar, might be revived with an eye toward putting it on the 2014 ballot.